TOP MACRO THEME(S):
- 2023 in preview: Central banks, including the NBP, face a ‘tragic’ choice in which there are no good solutions. They can either stabilize the economy at the price of a slower decline in inflation, or continue aggressive fight with inflation, accepting the risk of a deep economic downturn.
- Birds’s-eye view on the CEE region prospects: Economic activity in 2023 will hover around recessionary levels in most of the CEE region, while inflation is expected to gradually decrease, driven by both domestic and external factors, yet not strongly enough to reach inflation targets next year.
WHAT ELSE CAUGHT OUR EYE:
- Real economy data for November surprised positively. Industrial output held up well expanding by 4.6% y/y, driven mainly by exports of investment goods. Construction output surprisingly rebounded (+4.0% y/y) on improvement in civil engineering works despite harsh weather conditions. Real retailsales recovered a tad (1.6% y/y) on easing price pressures.
- Broad (M3) money supply grew by 5.6% y/y in November amid deepening decline of narrow money (M1), by 9.0% y/y. Banking statistics confirm a dry loan tap for consumers, with both consumer and mortgage lending declining in annual terms (PLN mortgages for the first time in over 20 years).
- Registered unemployment rate in November stood flat at 5.1%.
THE WEEKS AHEAD:
- An idle period at the turn of the year will be followed by manufacturing PMI and CPI inflation releases (Jan 2 and Jan 5, respectively). Our early estimates suggest that sentiment in manufacturing somewhat improved in December while CPI inflation in December barely changed.
- The MPC will be active in the first week of January. We think a wait-and-see approach will be confirmed both at the meeting on Wednesday, Jan 4, with no changes to monetary policy (key policy rate at 6.75%), as well as in the minutes of the MPC meeting in December.
- Balance of payments data for November should mark a turning point in C/A deficit-to-GDP ratio with reduction of deficit looming on the horizon.
NUMBER OF THE WEEK:
- -0.2% y/y –growth rate of PLN mortgages in November turned negative for the first time since May 2002.